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2013 Ballot Questions- Part 8: New Jersey and the Minimum Wage

New Jersey’s Proposal #2- a $1 increase in the hourly minimum wage from $7.25 to $8.25 plus future increases linked to inflation- will be watched by other states this year. This effort in New Jersey is being pushed by the Raise the Wage Campaign, a program of the National Employment Law Project. They are attempting similar measures in Massachusetts, Maryland, South Dakota, Alaska, Illinois, Minnesota, Hawaii and Idaho. Missouri, Alaska, New Mexico and South Dakota are at least four states that will likely have similar ballot measures in 2014.

This initiative began when Governor Christie vetoed a bill that would have increased the minimum wage from $7.25 to $8.50 and called for automatic increases based on the CPI. Christie countered that the better idea was to change the state’s Earned Income Tax Credit first, then possibly increase the minimum wage from $7.25 to $8.25 over a three-year phase-in period. This plan was vetoed by the state legislature. New York recently passed similar measures while California did also which guarantees that the minimum wage in that state will be $10.00 in 2016.

Minimum wages can be a contentious issue. Proponents are now adopting the strategy that in addition to increasing the base minimum wage, future increases should be tied to the rate of inflation as determined by the CPI. Nationally, Obama has supported an increase in the federal minimum wage from its current $7.25 to $9.00. One erroneous assumption is that by increasing the minimum wage, somehow the income inequality gap will be magically reduced. However, businesses will simply adjust by hiring more part-time workers, or even eliminating workers altogether in favor of technology. One can look at the example of banks and grocery stores where ATMs and automated check-outs have replaced tellers and cashiers- two traditional minimum wage entry level jobs. Agriculture is another area where technology has lessened the necessity of having low-paid workers. In other areas, technology is advancing so rapidly that other certain low-wage jobs may be obsolete in the future.

The Left is very adept at portraying those working for the minimum wage now as struggling families trying to get by in a stagnant economy. It is kind of ironic since these same people oppose policies that would break that stagnation, but that is a whole other story. Even more ironic is that these liberal voices are repeatedly telling us the economy is recovering, yet a minimum wage hike would be like throwing a monkey wrench into that alleged improvement. However, those faces of struggling families on television are statistically the exception to the norm. In 94% of families where there is a person working for the minimum wage, there is also another spouse working for a a salary above the minimum wage. In 80% of families where children are present (liberals often trot out children as props) the minimum wage earner accounts for less than 20% of that household’s annual income. In fact, the last time the minimum wage was increased, 16% of those who benefited had no children and, even more telling, 40% of the beneficiaries of that increase were teens working in low-paying jobs where they still lived at home (and, one assumes, paid no rent and contributed little to household income). The average beneficiary from the last increase in the minimum wage had average household income of $47,000 per year before the wage increase.

Regarding closing the income gap, from 2003 to 2007, 28 states increased their minimum wage. Subsequent studies proved that the rate of people living in poverty in these states showed no decline whatsoever. Thus, increasing the minimum wage is simply not a panacea for shrinking the income gap. Why? Because businesses will adapt to the increased labor costs by adjusting hours, adopting technological replacements, or simply doing more with less. Businesses are more adept in the area of “business” than any governmental program or tinkering. Regardless, the vast majority of those entering the workforce at minimum wage can expect an increase in their wages within a year as it is, provided they are a productive addition to that business.

Much of this was in the news this year when workers held “strikes” against the fast food industry- the face of minimum wage jobs- that proved little in the end. People still patronized these businesses despite the widespread publicity from the liberal press as if this was some burgeoning movement in labor. In fact, afterwards, the fast food industry, which is mainly run as franchises, is doing quite well while the workers are still making minimum wage. From a personal standpoint, paying someone $8.25 an hour to get my order wrong 50% of the time is an affront to the policy of rewarding productive employees. And while fast food chains like McDonald’s may have a healthy stock portfolio and good corporate profits, there are struggling franchises throughout America that are just barely surviving on a $7.25 minimum wage. Assuming there were no price increases passed on to consumers, they would likely fail. The only way to survive would be to increase prices to the consumer.

Speaking of businesses adapting, in the states with a minimum wage greater than the federal one, the unemployment rate averages 8%. In the states with a minimum wage of $7.25 an hour, the unemployment rate averages 7%. Throw in the fact that close to 1 million jobs in the workforce have been handed over to technology, increasing the minimum wage, despite those sad-looking “struggling” people on television (the “faces of an unfair minimum wage”), will not improve anyone’s life or income and may very well land someone on the unemployment line instead. Additionally, although there is a one year delay in the employer Obamacare mandate, in businesses that offer benefits or are to offer health benefits under Obamacare, a rise in the minimum wage coupled with those health care benefit costs act as a future one-two punch in the gut of New Jersey small businesses.

Another “sad face” trotted out is that of the struggling single parent trying to juggle child-rearing and a low-paying job. Again, this is a fallacy. Only 9% of those working for the minimum wage are single parents. Thus, proponents and the liberal media are certainly good journalists at searching out the minority. Of course, that is leaving aside the reasons for single-parenthood in the first place.

Ironically, reviewing studies of the last minimum wage increase, most of those studies (85%) indicated that businesses adapted by creating less jobs for low-skilled, low-paid labor. Furthermore, it decreases productivity by concentrating low-skilled employees in certain job classifications. That perhaps explains the higher unemployment rates in states with higher minimum wages than the federal mandate. Also, regarding economic growth in states with higher minimum wages, there is absolutely no difference when compared against those at the $7.25 per hour level. In the high minimum wage states, the greatest rate of economic growth has occurred in California at 3.7% annual growth. Yet California’s unemployment rate is 8.9%. Compare this with Texas or Utah where the average rate of economic growth is 4 and 4.2% respectively while unemployment in those states is 6.4% and 4.7% respectively, well below the national 7.2% rate. In every state (except Vermont) where the minimum wage exceeds $8.00 an hour, the unemployment rate exceeds 8%.

A final word regarding the economics of the minimum wage and that is the subject of tipped employees. Many minimum wage workers fall into this category. When their tips are figured into the equation, their average hourly wage comes out to $13.08 per hour. In these workplaces, it is estimated that the cost-per-employee is $2,600 to the business. If the minimum wage of tipped employees was increased, it would cost the average business over $10,000 a year in increased labor costs. How this helps the general economy of any state lacks commonsense explanation. In New Jersey particularly, where the state relies heavily on tourism dollars, businesses along the Jersey shore also rely on minimum wage seasonal employees. With an increase in the minimum wage, these low profit margin small businesses will have a greater amount of their already small profits eaten up by increased labor costs.

Leaving aside the economics of the issue, there is also the procedural problems with the New Jersey proposal. This question would constitutionally mandate future increases in the minimum wage with absolutely no debate on the merits of doing so. Future increases would be linked to the rate of inflation as determined by the CPI. This is a self-fulfilling circular program to increase the minimum wage. If wages are increased, businesses will pass on the increase in wages in the form of higher prices which will cause the CPI to increase which will trigger another round of minimum wage increases. And around and around it goes in a never-ending death spiral upwards. Instead of studied debate over the merits and costs of increasing the minimum wage, they will simply be constitutionally mandated and outside the purview of study. One could guess that businesses will study the effects and either close or move. Intuitively, it sounds like a great idea, but from a practical standpoint, it borders on stupidity. Also somewhat overlooked is the fact that the CPI can actually decrease. In those cases, is the minimum wage to be depressed?

And proving that the electorate is generally uninformed, current polls indicate that the proposal will pass with 65% support. Of course, when you word a proposal to sound as if it is some innocuous wage increase, people will vote for it. Assuming they are even aware, low income people will flock to the polls in an effort to boost their annual wages an average of $2,00 a year, assuming they have a full time job. So, of course people are going to vote “YES” on this proposal. They will realize the effects of their votes when there are less cashiers at the grocery check out line, or that amusement ride their kids like is closed due to limited hours, or they are asking themselves why their food is taking so long to arrive at the table, or why the ice cream stand they like so much is closed so early, etc.

Given the economics and the fact that future minimum wage hikes will be removed from considered debate and constitutionally mandated on some self-fulfilling formulation: